How Forex PAMM Accounts Work

“The secret to investing is to figure out the value of something – and then pay a lot less.” Joel Greenblatt

More return in the least amount of time and risk involved has always been a desired investment deal, which can be more or less satisfying to an investor. Although the ways of earning through investments are in abundance yet there are certain specific ways that are quite promising. One such way is to go along with the PAMM account system.

What is a PAMM?

PAMM, an acronym for Percentage Allocation Management Module or Percentage Allocation Money Management, is a form of investment that allows investors and potential investors to invest and earn even if they don’t possess any knowledge about the market or have no time or strategy to invest. Simply, it allows a person to use the knowledge and financial skills of PAMM (Percent Allocation Management Module) Forex brokers and make a profit.

The PAMM account system is well regulated by norms of concerned regulatory authorities and legal bindings of government which gives a sense of assurance to investors.

How does the PAMM account work?

It is a system in which there are 3 parties involved, the Broker firm (owner of the trading platform), the A/C manager (responsible for fund allocation), and the investor (fund provider).

A PAMM account is one kind of copy trading that allows an investor(s) to have their trading account and allocates his/her money in desired proportion to an authentic trader or fund manager connected to his “Master account”, which manages multiple trading accounts. Then, with the capital content in the account, the broker invests in forex trading. Since it’s available in automatic mode, the profit or loss incurred is then transferred to investors and PAMM managers, according to the proportion of their investment. After which, it is the wish of the investor if they want to draw out their profit or a certain amount or the amount entirely from their account.

Consider a hypothetical example,

Jim, John and Jerry want to invest in Forex trading through the PAMM account. So they approach a PAMM manager Jhilmil who charges a 20 % profit share.

Situation one: Profit

Now out of the profit firstly, the manager Jhilmil will take her share of 20% and the remaining profit amount will be distributed in the proportion of percentage Jim, John and Jerry have invested.

Situation two: no Profit/no Loss

In this case, no share will be acquired by the manager. Also, no share will be acquired by any investor.

Situation three: Loss incurred

Since it’s a loss situation, nothing will be acquired by Jhilmil whereas the investors will “lose” their amount up to the loss distributed proportionately.

Why consider a PAMM account?

For an investor:

Return: If an investor has no prior knowledge in forex trading he can invest funds with profitable traders and easily earn returns.

Financial knowledge: With the course of time an investor can gain market knowledge and formulate his own strategies of fund investment.

Authentic platform: A PAMM broker will provide the real history and background of the account as a broker firm acts as an independent guide that monitors the accounts, though it provides access to trading statistics of PAMM management. 

Ease of investment: the entire PAMM account working is an automatic mode of operations thus it can be accommodated within a single service.

Risk diversification: if an investor possesses knowledge about trading then he/she may diversify their risk by allocating their capital with several other PAMM accounts.

Transparency: transparency of operations is present also; money to trader is given on basis of performance.

Ease of deposit and withdrawal: an investor can invest more money or withdraw his balance amount as and when he likes.

Please note: the investor’s amount is being traded by a third party thus, it is necessary to track the past performance and ensure risk management etc before investing money

For a Broker: –

Returns even at no personal investment: If a broker possesses great financial knowledge but lacks fund, he can offer capital management service and earn some share in turn, although traders who invest their own funds along other investors are perceived to be more authentic and trustworthy, yet if they don’t pose any fund then to their past records and interpersonal skills can extend back to them.

Stuck on how to become a PAMM investor?

Worry not, We’ve got your back!

Step one: Open a Trading account

To open a trading account online follow the procedure accompanied,

  a) Select a broker/firm.

  b) Compare different brokerage rates and services rendered.

  c) Contact the broker that fits your requirements.

  d) Fill account opening form and required KYC forms, ID proofs etc.

  e) Application verification will go on.

  f) Gather your account details and you’re ready to place or sell an order.

Step two:  Fund your Trading Account

If you have an online trading account you are necessarily required to transfer funds only through NEFT/RTGS or via payment gateway.

If you have an offline trading account you can also opt for payment through cheque or demand draft but make sure your payment shouldn’t bounce.

Step three: Select a PAMM manager

Select a PAMM manager that suits you and invest your fund into the PAMM account. 

Step four: Keep a check of your deals 

Check for the likely risks, broker’s agreement terms, compensation etc and monitor your account.

Step five: Withdrawal of funds

Confirm your broker’s agreement for withdrawing since the procedure slightly varies from broker to broker thus emphasis should be drawn upon the terms of brokerage.